By Rachelle Younglai
WASHINGTON (Reuters) - Hundreds of bailed-out banks are still struggling to repay taxpayers and will soon find it even harder to make required dividend payments to the Treasury, according to a report on Wednesday by the watchdog for the government bailout program.
Of the 707 banks that received taxpayer money from the government's Troubled Asset Relief Program starting in 2008, also known as TARP, about half have repaid the Treasury.
However, 137 of those banks used a government-loan program to repay their taxpayer debts, according to the watchdog's quarterly report to Congress.
And of the 325 banks still propped up with taxpayer money, 203 have missed dividend or interest payments, with some missing as many as 13 payments since receiving capital injections at the height of the financial crisis, said the report.
Adding to their woes, the dividend that the bailed-out banks are required to pay to Treasury is set to increase to 9 percent from the current 5 percent as early as 2013.
"Those banks are not able to raise the capital that is required to get out of TARP," said Christy Romero, the special inspector general for the bailout program.
"We are very concerned about those banks, and want those banks to stand on their own feet without government assistance," she said.
Treasury has been trying to exit the bailout programs that have been criticized by Republican lawmakers for excessive government intervention. And Obama administration officials repeatedly stress that the bank bailouts, including the one used to directly inject capital into banks, have earned taxpayers more than $19 billion.
This week, the Treasury said it would sell preferred stock and debt in 12 of the bailed-out banks. In June, Treasury successfully raised some $200 million from the sale of preferred stock in seven bailed-out banks.
Treasury has been careful in saying that it will exit programs when the time is right and would not make decisions for political reasons.
"We're continuing to balance exiting our investments as soon as practicable and maximizing value for taxpayers," said Treasury spokesman Matt Anderson.
But Romero said it appears Treasury wants to exit their investments as soon as possible.
"If they want to do a swift government exit, (Treasury) has to ensure that financial stability continues otherwise the purpose of TARP is not met," Romero said, adding that she has not seen the analysis from Treasury that she thinks is necessary to make decisions on whether to exit a TARP bank.
According to the inspector general's report, taxpayers have now lost $5.5 billion on its investment in insurer American International Group. The government's remaining investment in the company is $30 billion, down from the initial $180 billion.
(Reporting By Rachelle Younglai; Editing by Cynthia Osterman)